Social Responsibility Resolutions

Journal of Corporation Law, 2017, Forthcoming

Harvard Law School Program on Corporate Governance Working Paper 2016-06

39 Pages Posted: 3 May 2016 Last revised: 13 Oct 2016

Scott Hirst

Harvard Law School

Date Written: October 10, 2016

Abstract

Shareholders exert significant influence on the social and environmental behavior of U.S. corporations through their votes on social responsibility resolutions. However, the outcomes of many social responsibility resolutions are distorted, because the largest shareholders – institutional investors, such as mutual funds and pension funds – often do not follow the interests or the preferences of their own investors. This paper presents evidence that institutions with similar investors and identical fiduciary duties vote very differently on social responsibility resolutions, suggesting that some institutional votes distort the interests of their investors. Other evidence presented suggests that institutional votes on social responsibility resolutions vary significantly from the preferences of their own investors. Whether such distortion of preferences is a problem is an open question. If such distortion is considered to be a problem, it could be addressed by institutions changing their voting policies on social responsibility resolutions to better approximate the preferences of their investors. The stakes are high: eliminating distortion could significantly influence the behavior of corporations on social and environmental matters in a way that investors, and society, would prefer.

Keywords: Shareholder Resolutions, Corporate Social Responsibility, Shareholder Voting, Mutual Funds, Fiduciary Duties, Shareholder Proposals, ESG

JEL Classification: K22, G34, G38, D22

Suggested Citation

Hirst, Scott, Social Responsibility Resolutions (October 10, 2016). Journal of Corporation Law, 2017, Forthcoming; Harvard Law School Program on Corporate Governance Working Paper 2016-06. Available at SSRN: https://ssrn.com/abstract=2773367 or http://dx.doi.org/10.2139/ssrn.2773367

Scott Hirst (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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